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When bad things happen to countries, continents, or companies, good things can happen for traders.

Consider Europe. Sagging under the weight of slowing economies, it is desperate for some super-monetary rescue to restore confidence in the European Union, and that possibility is looking shaky (See "A Resignation Pounds Stocks"). Prices of call options on many stocks with European exposure are pumped up, reflecting the uncertainty.

Investors potentially can profit by selling calls on stocks with significant exposure to the Old World, and buying calls on stocks with little or no European exposure.

This type of posturing is what Morgan Stanley's derivatives strategists are telling clients to do by using equity options to "pair-trade" certain stocks.

The classic pair trade entails selling a stock thought to be overvalued, and buying one perceived to be undervalued. Ideally, the stock that was sold declines in value, and the stock that was bought rises in value. Of course, if the shares move in unexpected directions, the trades become an expensive mistake in the art of relative-value trading strategies.

Here's the twist on the Morgan Stanley trade. Rather than using stocks to do pair trades, Morgan Stanley's strategists are advising clients to use call options because there are differences in the implied volatility of stocks that have European exposure, and those that do not. Implied volatility is the critical part of options-pricing models. When volatility is high, many investors like to sell options because high volatility often equals high prices.

Christopher Metli and Sivan Mahadevan, the bank's derivatives strategists, told clients to consider selling January calls 10% out-of-the-money on stocks with European exposure and buying a similar call on stocks without the same geographic risk. The implied volatility of the European stocks tends to be about eight percentage points to 20 points higher than American call options.

The strategists expect both groups of stocks to climb in a rising market, but they believe that the EU-exposed names will not advance as much, which makes some sense, given the economic troubles in so many European nations. The main trade risk is that European-exposed stocks rise more sharply than American stocks, and that the implied volatility of European calls increases, or doesn't move.

Investors who find the pair trades too complicated can use the concept as fodder for simpler stuff. Many investors sell high-priced calls to increase the return on stocks that they own. Others sell calls and use the proceeds to lower the cost of buying associated shares.

CBOE takeover rumors remain rampant, but the recent vigor seems unusually robust. However, when the markets tank, the CBOE tends to see big increases in exclusive VIX and index options. This means that high-margin transaction fees drop to the bottom line, a nice attraction.